Project Report on Study

Of

Financial Analysis

At

Verka Milk Plant Bathinda

Submitted To: Dr. Apar Singh Submitted By:

Akashdeep Kaur

MBA- 2nd

Roll No. 120426189

SCHOOL OF MANAGEMENT STUDIES

1

PUNJABI UNIVERSITY, PATIALA

ACKNOWLEDGEMENT

I am highly indebted to the management of Verka Milk Plant Bathinda to undertake me as

training in their organization. I would like to thank specially to Mr. S. K. Sharma (General

Manager) for providing me an opportunity to undertake training at Verka Milk Plant

Bathinda.

I wish to express my gratitude towards Mr. A. K. Wadhwa for permitting me to work under

his guidance and cooperation. I have no words to express my gratitude to the profound

interest taken by him at every stage of the project. His encouragement and support made my

target easily achievable. I would also like to thank other office and marketing staff of Verka

Milk Plant Bathinda for their cooperation and helpful behaviour.

I also express my sincere thanks to my parents and friends who always have been source of

inspiration to me and supported me morally and financially in every activity during the

training.

Above all I would like to thank almighty for showering

his blessings to complete the project.

2

PREFACE

For the completion of the MBA , it has been mandatory to obtain an Industrial Training in

Finance. This training session really help me in gathering knowledge of market.

I have prepared this project on the topic “Financial Analysis of Verka Milk Plant Bathinda”

in which I have written about how an organization can manage its working capital in its daily

business operations.

This report is prepared during training is life’s greatest treasure as it is full of experience,

observation and knowledge. The training held was very gainful as it took us close to real life.

This period also provide a chance to give theoretical knowledge a practical result.

This report is a result of 45 days training that I have taken at verka milk plant bti. It has been

very educative and fruitful experience for me for it has given me an insight into some

practical experience.

I wish this great organization success so it may flourish and serve the nation and have to

achieve many goals.

3

STUDENT DECLARATION

I hereby declare that the summer training report entitled submitted in the partial

fulfillment of the requirement for degree of M.B.A.

To verka milk plant Bathinda is my original work and not submitted for the award of any

other degree, diploma or any other similar title or price.

Project guide: Name:

Mr. A. K. Wadhwa Akashdeep kaur

4

CONTENTS

Introduction Indian dairy industry

Dairy Plants

MILKFED- PUNJAB

MILK PLANT BATHINDA

MANAGEMENT BOARD OF DIRECTORS

Objectives of the study

Scope of the study

Research methodology

Limitations of the study

An Introduction to Financial Analysis

Objectives and procedure of Financial Analysis

Types of Financial Analysis

Goals of Financial Analysis

Methods of Financial Analysis

Limitations and interpretation

Research and methodology

Objectives of Research

Limitations and suggestions

Findings

Conclusion

Bibliography

5

INTRODUCTION

The dairy sector in the India has shown remarkable development in the past decade and India

has now become one of the largest producers of milk and value-added milk products in the

world. The dairy sector has developed through co-operatives in many parts of the State.

During 1997-98, the State had 60 milk processing plants with an aggregate processing

capacity of 6 million lack liters per day. In addition to these processing plants and 45 co-

operatives milk chilling centre operate in the State.

With the increase in milk production. Maharashtra now regularly exports milk to

neighbouring states. It has also initiated a free school feeding scheme, benefiting more than

three million school children from over 19,000 schools all over the State.

INDIAN DAIRY INDUSTRY

Dairy is a place where handling of milk and milk products is done and technology refers to

the application of scientific knowledge for practical purposes. Dairy technology has been

defined as that branch of dairy science, which deals with the processing of milk and the

manufacture of milk products on an industrial scale.

In developed dairying countries such as the U.S.A., the year 1850 is seen as the dividing line

between farm and factory-scale production. Various factors contributed to this change in

these countries, viz. concentration of population in cities where jobs were plentiful, rapid

industrialization, improvement of transportation facilities, development of machines, etc.

whereas the rural areas were identified for milk production, the urban centers were selected

6

for the location of milk processing plants and product manufacturing factories. These plants

and factories were rapidly expanded and modernized with improved machinery and

equipment to secure the various advantages of large-scale production. Nearly all the milk in

the U.S.A. before 1900 was delivered as raw (natural) milk. Gradually farmers within easy

driving distance began delivering milk over regular routes in the cities. This was the

beginning of the fluid milk-sheds which surround the large cities of today. Prior to the 1850s

most milk was necessarily produced within a short distance of the place of consumption

because of lack of suitable means of transportation and refrigeration.

The Indian Dairy Industry has made rapid progress since Independence. A large number of

modern milk plants and product factories have since been established. These organized

dairies have been successfully engaged in the routine commercial production of pasteurized

bottled milk and various Western and Indian dairy products. With modern knowledge of the

protection of milk during transportation, it became possible to locate dairies where land was

less expensive and crops could be grown more economically.

In India, the market milk technology may be considered to have commenced in 1950, with

the functioning of the Central Dairy of Aarey Milk Colony, and milk product technology in

1956 with the establishment of AMUL Dairy, Anand. The industry is still in its infancy and

barely 10% of our total milk production under goes organized handling.

HISTORY OF INDIAN MARKET MILK INDUSTRY

Beginning in organized milk handling was made in India with the establishment of Military

Dairy Farms.

Handling of milk in Co-operative Milk Unions established all over the country on a

small scale in the early stages.

Long distance refrigerated rail-transport of milk from Anand to Bombay since 1945

7

Pasteurization and bottling of milk on a large scale for organized distribution was

started at Aarey (1950), Calcutta (Haringhata, 1959), Delhi (1959), Worli (1961),

Madras (1963) etc.

Establishment of Milk Plants under the Five-Year Plans for Dairy Development all over

India. These were taken up with the dual object of increasing the national level of milk

consumption and ensuing better returns to the primary milk producer. Their main aim was to

produce more, better and cheaper milk.

DAIRY INDUSTRY IN INDIA

More than 2,445 million people economically active in agriculture in the world, probably 2/3

or even more ¾ of them are wholly or partly dependent on livestock farming. India is

endowed with rich flora & Fauna & continues to be vital avenue for employment and income

generation, especially in rural areas. India, which has 66% of economically active population,

engaged in agriculture, derives 31% of Gross Domestic Product GDP from agriculture. The

share of livestock product is estimated at 21% of total agricultural sector.

Contribution of live stock sector to gross domestic product

(Percentage contribution)

1950-51 1990-91

63.5 67.0

12.0 16.0

4.1 3.1

1.3 0.3

16.5 10.0

8

 Live stock populations:

Number of animals (in thousands)

(Source: production yearbook 1995 /FAO statistics division)

Milk Production

1950 – 17 million tonnes

1996 – 70.8 million tonnes

1997 – 74.3 mT

(Projected) 2020 – 240 mT

Expected to reach-

220 to 250 mT –

2020

India contributes to

world milk

production rise from

12-15 % & it will

increase up to 30-

35% (year 2020)

Milk Composition

9

Sheeps Goats Pigs Chickens Cattle

45000 11924

2

11780 435 194655

Buffaloes Horses Mules Camels  

79500 990 1742 1520  

Sr.

no

Constituents Buffalo Cow Goat Liquid skimmed milk

1 Moisture (gm) 81.00 87.50 86.80 92.10

2 Protein (gm) 4.30 3.20 3.30 2.50

3 Fat (gm) 6.50 4.10 4.50 0.10

4 Minerals (gm) 0.80 0.80 0.80 0.70

5 Carbohydrates (gm) 5.00 4.40 4.60 4.60

6 Energy calories

(kcal)

117.00 67.00 72.00 29.00

7 Calcium (mg) 210.00 120.00 170.0

0

120.00

8 Phosphorus (mg) 130.00 90.00 120.0

0

90.00

9 Iron (mg) 0.20 0.20 0.30 0.20

Indian Buffaloes: (Dairy business Directory 1996)

Buffaloes are classified into two categories;

1) Reverine (depending upon variation in their habitat & genome)

2) Swamp

Swamp buffaloes: - 48 chromosomes

  South East Asian countries

  Stocky animals, marshy land habitat

River Buffaloes: - 50 chromosomes

- Massive in size and curled horns

- Prefer to enter clear water

India:

  Leading most buffalo populated country

  78 millions most of reverine

Milk production: About 95% of world buffalo milk (45.3 million tones) is produced in Asia

&Pacific, while 64.4% is produced in India (FAO.1992)

From 1950 to 1992 milk production in the world increased by 4.26%

The % of total bovines slaughtered;

Total bovine slaughtered (%)

10

  World 17.1 to 17.4% or - 1.6% per annum

  India 15% per annum

  Asia 6.6%

Increasing trend of buffalo population in most of the Asian countries in Brazil and Italy

Production performance

Growth: The average birth wt.(Indian buffaloes) low 21 kg  High 41 kg

Higher in male calves than in females

Average daily gain of 548 gm between 3-6 months404 gm between birth to 36 months

Body weight at first calving- ranges from

367kg(Dharwati)to531kg(NiliRavi)

Higher growth rate in reverine breeds than swamp

MILK PRODUCTION

Production performance of different breeds of Buffaloes:

  Age at 1st calving

(months)

Lactation.

Yield (kg)

Lactation Length (days)

Buffalo Avg. Range Avg. Range Avg. (Range)

Murrah 43.0 39.9-54.5 1850 1476-2515 315(267-365)

Nili Ravi 42.0 41.4-47.3 1765 1596-2808 2808 (09)

DAIRY PLANTS

India's modern milk supply goes back to December 15, 1950, when the Aarey Milk Plant in

Bombay launched the supply of pasteurized and bottled milk on large-scale for the first time

11

in India. Subsequently, over the years, the share of the organized sector increased after the

launching of Operation Flood in 1970.

From an insignificant 200,000 liters per day (lpd) milk processing in 1951, the organized

sector is presently handling over 20 million lpd in almost 500 dairy plants. Already, one of

the world’s largest liquid milk plants is located in Delhi, handling over 800,000 liters of milk

per day (Mother Dairy, Delhi). India's first automated dairy (capacity: 1 mlpd), Mother Dairy,

Gandhinagar, was commissioned at Gandhinagar near Ahmedabad, Gujarat, in Western India.

It is owned by India’s biggest dairy cooperative group, Gujarat Cooperative Milk Marketing

Federation (GCMMF) in Anand, with an annual turnover in excess of Rs 22 billion (US $500

million) in 1999.

Dairy Plants Update: India's first vertical dairy commissioned

Amul-III with its satellite dairies at Anand in Gujarat, with total installed capacity of 1.5 tone

(capacity: 400,000 lpd) has been commissioned at Noida, outside Delhi, in 1999. It is owned

and managed by the Pradeshik Cooperative Dairy Federation Limited, Lucknow in Uttar

Pradesh.

RESOURCES: DAIRY PLANTS

In this section Dairy plants are listed alphabetically and region wise, including liquid milk

plants and product manufacturers, both Western and indigenous, in the public, cooperative

and private sectors. The address, phone and fax numbers, list of products manufactured and

capacities and other details of these Plants can be obtained from DAIRY INDIA 1997 or

from us.

Verka - Punjab's leading milk brand

One of the leading dairy brands of North India, Verka, is yet another contribution from the

state of Punjab. The flagship brand of the Punjab State Cooperative Milk Producers'

12

Federation Ltd (Milkfed), Verka is today enjoying the patronage of customers both within

and outside the country. Milkfed's future programmes can never be complete without Verka.

Verka is a brand leader in milk powders particularly in northern & eastern sectors. The

Milkfed brand commands a premium price over milk powders manufactured by competitors,

which include multinational as well as private trade and other cooperative federations.

Milkfed claims that Verka has carved a niche on the basis of the sheer strength of its quality,

freshness and purity.

Milkfed is serving nationwide consumers through its network of Regional offices and strong

distribution channels. Milkfed markets a wide variety of products, which include liquid milk,

skimmed milk powder, whole milk powder, infant food, ghee, butter, cheese, lassi, SFM, ice

cream, malted food and Verka Vigor etc. The annual turnover of Milkfed has touched to Rs

450 crore.

Milkfed states that it has successfully leveraged on the brand equity of Verka to launch new

trends, needs, tastes and hopes. Verka brands included varied varieties of cheese like the

processed cheddar cheese, cheese spread, and cheese singles. There are also milk powders

like Dairy Whitener, Skimmed Milk Powder and Infant Milk Powder.

Health Drinks like Verka Vigour, Verka Lassi, Sweetened Flavored Milk and a mango drink

called Raseela have also hit the markets. Milkfed has now come out with Verka Curd and a

whole lot of different flavours of ice creams. Milkfed has also made a foray into the

international markets. They say that it was the domestic competition that drove them to alien

destinations. However, Milkfed has already established its ghee market in the Middle East.

Verka ghee reaches all the Emirates and is available in almost all super markets. In addition

to ghee, SMP is also exported to Asian Countries like Philippines, Bangladesh and Sri Lanka.

Verka Malt Plus (Malted Milk food) is being exported to Bangladesh also.

With Technology Mission Programmes, ever widening markets and increasing exports,

Milkfed is preparing itself to take Verka to greater heights. The federation has planned to

13

introduce more value-added products like Tetra-Pack Plain Milk and low calorie lassi. It has

also sought technical assistance from the Israel Dairy Board to initiate breed improvement

and milk production enhancement programme in the state.

Milkfed not only provides assured market to milk producers but also carries inputs to enhance

milk to their doorsteps. The District Cooperative Milk Producer's Unions and Milk Plants

have attained self-sufficiency or are on the threshold of attaining it. Milkfed has played a very

vital role in providing a strong base for remunerative price to the producer; they get more

money for their milk and payments are timely. In addition technical input services in feeding,

breeding and management are easily accessible. Value addition is one of Milkfed's thrust

areas and the plants produce not only pasturised, homogenised milk but also buttermilk,

cream, cheese, ice cream, butter and clarified butter-oil (ghee) and several other products.

The Milk Unions have marketed milk and milk products of the value of Rs 202.87 crore

during the previous year.

It should be noted that the state government has recently announced a new project in which

78 bulk milk coolers are to be installed by the central government at the level of milk

cooperatives in the districts of Ropar, Ludhiana, Gurdaspur and Patiala under a Centrally

Sponsored Scheme. For this purpose, the Government of India has already released an

amount of Rs 143.15 lakh for the installation of 24 bulk milk coolers for implementation of

this programme in Ropar district. This move is expected to help the farmers to produce

quality milk and get better farm gate price and consumers shall get quality milk. The

budgetary outlay for the programme is Rs 1.41 crore. Milkfed is an apex body at the state

level. It has 11 Milk Unions at district level operating 10 milk plants and more than 5,000

cooperative societies at village level with a total of 3 lakh members.

Apart from the main arena of collecting more and more milk and enrolling more and more

milk producers, Milkfed and its units have a work force of about 5000 employees. Every

morning and evening milk is lifted from the villages through private vehicles - this means

14

regular employment to about 600 transporters, most of whom are self-employed. Some

10,000 workers man the milk procurement and technical input operations.

MILKFED-PUNJAB

The Punjab State Cooperative Milk Producers’ Federation Limited popularly known as

MILKFED Punjab, came into existence in 1973 with a twin objective of providing

remunerative milk market to the Milk Producers in the State by value addition and marketing

of produce on one hand and to provide technical inputs to the milk producers for

enhancement of milk production on the other hand. Although the federation was registered

much earlier, but it came to real self in the year 1983 when all the milk plants of the erstwhile

Punjab Dairy Development Corporation Limited were handed over to Cooperative sector and

the entire State was covered under Operation Flood to give the farmers a better deal and our

valued customers better products. Today, when we look back, we think we have fulfilled the

promise to some extent. The setup of the organization is a three tier system, Milk Producers

Cooperative Societies at the village level, Milk Unions at District level and Federation as an

Apex Body at State level. MILKFED Punjab has continuously advanced towards its coveted

objectives well defined in its byelaws. § Home § Organization § Procurement § Products §

Marketing § Achievements § Looking Beyond

Milkfed has formulated company specifications for its milk & milk products

15

To provide standard and quality of products to consumers.

Milk Cheese & Paneer Drinks

Ghee & Butter Icecream & Sweets Milk Powder

Fresh Products Packing    

16

On the basis of quality with efficient administration, MILKFED has not only established new

mile stone of providing services to Dairy farmers but scaled new heights in delighting

esteemed customers also. This has resulted into tremendous achievements in all fields.  

TURNOVER:

The annual turnover of Milkfed which was Rs.1250 crores in the year 2011 has hit the level

of Rs.1438 crores in the year 2012.

2009 2010 2011 20120

200

400

600

800

1000

1200

1400

1600

turnover (in crores)

turnover (in crores)

EQUITY PARTICIPATION:

17

The paid-up equity of Milkfed as on 31.3.2012 was to the tune of Rs.46.86 crores which

comprises of Rs.28. crores from the cooperative members and balance Rs.17.93 crores from

State Government.

MILKFED GROWTH AT A GLANCE

PARTICULARS UNIT 2007-08 2008-09 2009-10 2010-11 2011-12

FUNCTIONAL

SOCIETIESCUMMU.NOS. 6445 6104  6101 5989 6155

MEMBERSHIPCUMMU.NOS

IN LACS3.76 3.56    3.63   3.60 3.65

AVG. DAILY MILK

PROCLKG SPD 7.45 7.81   7.82 7.78 8.21

PEAK MILK PROC LKG SPD 10.04 11.64  11.37 11.54 12.39

A.I. CLUSTER

SOCS.COOMU.NOS. 323 341  388 433 504

FODDER SEED

SUPPLIEDM.Ts. 444.10 400.30   430.00 500.00 572.00

CATTLE FEED

SOLDM.Ts. 73724 66970 66750  73577 86174

AVG..DAILY CITY

SUPPLYLLPD 4.97 5.27   5.67 5.81 6.16

SALE OF SFM LAC PKTS/BTLS 30.32 35.85  42.49 41.92 61.11

SALE OF LASSI LAC PACKETS 10.54 12.20  16.89 19.16 29.51

SALE OF ICE-

CREAMLAC  LITRES 9.17 10.23  12.18 15.61 17.68

EXPORTS RS.IN LACS 698.17 1142.28  713.67 1140.35 1334.90

TURNOVER RS.IN CRORES 585.00 653.00  675.00 760.00 931.00

18

 

MILK   PROCUREMENT NETWORK:

Working on "Anand Pattern" the process of organizing societies at village level started in

Punjab as early as 1978. Presently, there is strong

Network of about 6155 ( as on 31.3.2008) Milk Producers

Cooperative Societies organized at village level. About

3.65 Lakh milk producer members are attached to these

societies. Fresh milkis procured from the milk producers

twice aday through village level societies directly without

the assistance of any middleman.

INPUT SERVICES:

It is one of the fundamental objectives of  MILKFED to

carry out activities for promoting milk production in the

State. In view of this, various technical input services like

veterinary health care, artificial insemination services,

vaccination, supply of VERKA balanced cattle feed and quality fodder seed etc. are provided

for enhancing milk production and economic development of farming community.

CLEAN MILK PRODUCTION PROGRAMME :

For improving quality of raw milk right from milk producer's level, q massive programme

called "CMP" has been launched under which 195 Bulk Milk Coolers have been installed in

the societies and many more in pipe line. Besides, more than 1000 Automatic Milk Collection

19

Stations have been provided to the societies for bringing efficiency and total transparency in

the system. Traditional manual method of milk testing at society level is being replaced with

Electronic Milk Testers.

WOMEN DAIRY PROJECT :

Household level dairying is largely the domain of women especially in small and marginal

household families. In view of this fact, Milkfed has undertaken Women Dairy Project in six

Milk Unions namely Hoshiarpur, Ropar, Patiala, Jalandhar, Ludhiana and Amritsar with an

objective to empower rural women in the field of dairy. This Programme is being

implemented under Support to Training & Employment Programme (STEP) with the

assistance of Government of India. Under this programme,

390 women societies with 19860 women beneficiary members

will be organized.

SETTING UP OF BIG COMMERCIAL DAIRY FARMS:

In order to enhance the milk production and

making the dairy farming a profitable and

sustainable profession, Milkfed has planned to

establish at least ten progressive big dairy farms in

each Milk Union by arranging soft terms loans

from the banks. 

PRODUCTIVITY ENHANCEMENT PROGRAMME :

20

With a view to enhance milk production so as to reduce average cost per Kg. of milk

produced, Milkfed and its affiliated Milk Unions are providing technical input services like

animal health care, artificial insemination services, vaccination, supply of balanced cattle

feed, supply of quality fodder seeds etc. to specific target group i.e. Milk Producers

Cooperative Members at their door steps.

  COMMUNITY BASED SILAGE MAKING IN KANDI AREAS :

Milkfed initiated community based silage making to fulfill shortage of green fodder in Kandi

area of Hoshiarpur & Gurdaspur. This will ensure avalability of green fodder in the shape of

Silage during scarcity period. This will help in improving milk production. 50 Silo pits of

capacity 150 M.T. each will be constructed during the year 2009-10. Rs.10.15 crore shall be

given as capital grant for construction of Silo pits, chaff cutters, weighing balance and

training.

 FODDERSEED MULTIPLICATION PROGRAMME :

Non availabilty of quality fodder seed was a major constraint. Milkfed established its own

automatic fodder seed production & processing unit at Bassi Pathana of capacity - 15

21

MT/Day. During the year, Milkfed produced 6228 quintals of quality fodder seed and during

the year more than 8000 quintals of seed will be produced.

 PROVIDING MILKING MACHINES/MILKING PARLOURS:

To upgrade milking technology, Milkfed is providing milking machines/milking parlours to

dairy cooperative societies/progressive dairy farmers at 50%/25% subsidy. Till date 450

Milking Machines and 4 Milking Parlors have been provided against the target of 800

milking machines for the year 2009-10. Rs.2.00 crore have been received from Govt. of

Punjab as financial assistance. This will improve Bacteriological quality of milk, hygienic

conditions of teats of animals and reduce stress to animals/Milkers and somatic cell counts.

MARKETING & EXPORT

MILKFED PUNJAB is serving nation wide consumers through its net work of Regional

Offices and strong Distribution channels. MILKFED markets a wide variety of products,

which include Liquid Milk, Skimmed Milk Powder, Whole Milk Powder, Dairy Whitener,

Ghee, Butter, Cheese, Lassi, Tetra Pack Sweetened Flavored Milk, UHT milk in Tetra Pack,

Ice Cream, Malted Food Verka Vigour, Khoa etc. etc.

22

VERKA is brand leader in milk powders particularly in northern eastern sectors and

Skimmed Milk Powder marketed by Milkfed commands a premium price over powders

manufactured by competitors which include multi-national as well as private trade and other

Cooperative Federations. Now Verka has arrived on the sheer strength of its quality,

freshness and purity. And of course, it’s homemade taste at the most affordable price. To

people today, Verka is the part of their daily lives.

Milkfed, Punjab, is making available pasteurised milk packed and processed under hygienic

conditions at the doorsteps of the consumers. Keeping in view the modern days human stress,

strains and undernourished persons, those do not get adequate Vitamin A & D from other

sources, Milkfed felt its moral responsibility to take care of their health by enriching Verka

milk with Vitamin A & D.

With competition in national market zooming up efforts to enhance export of Milk Products

have been made. Milkfed has established its ghee market in Middle East market. Verka ghee

reaches all the emirates and is available almost in all the super markets. The penetration is so

deep that verka ghee is available in far off labour camps.

FUTURE PLANNING

Punjab is the State, which has pioneered the green revolution in the country. It is because of

the efforts of the Punjab farmers that India now occupies an enviable position of self-reliance

in respect of food grains on the World map. Consequent upon intensification of agriculture,

Punjab agriculture has now reached saturation level beyond which further growth appears to

be limited. This necessitates a fresh look at the agricultural scenario prevailing in the State so

that the Punjab farmer who is very enterprising and is receptive to new technology continues

to reaps the fruits of his labour without permanent damaging his environment.

The programme aims at bringing a voluntary shift in cropping pattern, introduction of

income/employment generating/productivity oriented programmes directly benefiting the

23

farmer of Punjab. Under the programme following schemes are proposed for Dairy

Development concerning Milkfed, Punjab:-

Milk Production and Hygienic Quality Improvement Assistance.

Modernization of Milk Testing.

Establishment of Method-cum-Result Demonstration Units.

In the field of dairy development, Commercialized Dairy Farming for producing more milk

round the year of high quality was felt the only solution for the viability of Dairy Industry in

the present National and International Dairy Scenario. It will help 70% rural population of

Punjab in increasing their income.

With the objective to accelerate the pace of Milk Production in the State of Punjab and to

improve the quality of milk right at the Society level and to increase the milk procurement to

have 100% capacity utilization of Milk Plants, a detailed Action Plan, vision 2004 has been

prepared jointly by Milkfed, District Milk Unions and Cooperative Department spelling out

there in the various activities to be undertaken for Dairy Development in the State of Punjab.

The broad objective of the Plan is to produce maximum milk of the best quality at the least

cost per liter, collect, store and transport it at least cost in an idle way to be of best quality

when received at Milk Plants dock to utilize it for high standard value added products to earn

maximum income and inturn paying remunerative price for raw milk to the Milk Producers.

It is hoped that with the implementation of Vision-2004 plan the number of Milk Producers

Cooperative Societies will increase to 8000 from 5840 in March-2k and the membership of

these societies will increase from 3.38 lacks in March-2k to 4.75 lacks by the end of March-

2004. Similarly the average milk procurement will increase to 15.30 lack liters per day in the

2003-04 from 8.11 lack liters per day in 1999-2k. The detailed investment proposals have

been submitted to National dairy Development Board for funding.

24

MILK PLANT BATHINDA :

Milk Plant Bathinda was commissioned in September, 1974 with a total outlay of Rs. 1.6

Crores by The Punjab Dairy Dev. Corporation limited. It was one of the select co-operatives

that were covered under the Operation Flood-1 Programme. Subsequently on Ist March,

1980, it was handed over by the State Govt. to The Punjab State Co-operatives milk

Producers federation Ltd. (MILKFED) which is an apex level organization of milk producers

operative in the State. Further to this development, the Milk Plant was handed over to The

Bathinda District Co-operative Milk Producers Union Ltd. (registered in the year 1978 under

Punjab co-operative Act.) on 1st January 1988. Milk Plant set up with a twin objective of

providing remunerative milk market to the milk producers in this area and also supplies good

quality milk products to the consumers at reasonable rates and also marketing of milk

producers at village level.

The Union has a processing capacity of 100TLPD and drying capacity of 6.2 MTD. It also

owns four Milk Chilling Centers namely Rampura (15TLPD), Talwandi Sabo (10TLPD),

Bhikhi (15TLPD) and Sardulgarh (20TLPD). In addition the union has hired ice factory

Bhagta with a capacity of 20TLPD.

25

Milk and Milk products are prepared as per the norms by pasteurizing the milk and others

required process to fulfill the target/norms as per the market demand. Milk plan also got ISO-

9001:2000 with HACCP (as per IS: 15000: 98) and also approved by the Export Inspection

Agency New Delhi for export the milk products. Milk products having standards norms of

PFA/BIS/EGG MARK and our prescribed specification if International Standards for export

of ghee and Milk Powder to Dubai and

Middle East Countries.

Products : - (BRAND-VERKA)

Milk

Ghee

Skimmed Milk Powder

Whole Milk Powder

Table Butter

Paneer

Khoa

S.F.M.

Milk Cake

Lassi

Kheer

Ice Cream

26

THE EXTENSION OF THE BRAND :

After winning faith of innumerable consumers, Verka did not stop. For there was a scope for

more. Changing times brought new trends, needs, tastes and hopes. Verka dynamic as ever,

too acquired newer forms. By adding value to milk to satisfy a quality conscious society. And

what success! For, consumers could have their own pick as we came up with varied varieties

of cheese like the Processed Cheddar Cheese, Cheese Spread, and cheese Singles. 

And there were milk powders like Dairy Whitener, Skimmed Milk Powder and Infant Milk

Powder. Health Drinks like Verka Vigour, Verka Lassi, Sweetened Flavoured Milk and a

mango drink called Raseela. Then there were Verka Curd and a whole lot of different

flavours of Ice Creams.

OBJECTIVES OF VERKA MILK PLANT

The objective of milk plant is collected milk from different villages. It utilize in

proper way.

It provides best quality of product.

The verka milk plant is played main roll in increase the dairy form. People are shown

interest in dairy form.

Its main purpose is made dairy business in rural area.

MANAGEMENT BOARD OF DIRECTORS

Sh. V.K.Singh (IAS) M.D.milk fed Punjab

S. Sandhura Singh Chairman

27

S.Bikermjit Singh Vice Chairman

S. Labh Singh Director

S. Sukhpal Singh Director

S. Jagsir Singh Director

S. Surjit Singh Director

S. Jawala Singh Director

S. Balwinder Singh Director

S. Amrik Singh Director

Smt. Surinder P. Kaur Director

S. Boota Singh Galib, J.R. Co-op.SOC.Ferozpur

S.H.S.Jatana Dy.Reg.co-op.SOC.BTI

S.Karnail Singh Dy.Dir. Dairy Dev .BTI

S.T.P.S.Walia Milkfed Nominee

Sh.M.D.Sharma N.D.D.B.Nominee

Sh.R.K.Tiwari G.M.Milk plant BTI

OUTLINE OF THE STUDY:-

Financial analysis of the statements is very important in company management so that the

various important decisions can be taken at time. It is very helpful for the related parties who

28

are interested in the financial position of the firm. The rationale behind the study is to

develop an understanding about the accounts department & financial statements. It gives the

practical knowledge in accounts. This study also helps in identifying the strengths &

weaknesses of the organizations. The study gives the chance to look into the matter deeply.

Scope of the study

The study is conducted only at “Verka Milk Plant Bathinda” Punjab for the period of 6

weeks. The study is based on secondary data and all the information is available within the

company itself in the form of records. I have also personally investigated the financial

statements of the company. So the scope of the study is limited up to the availability of

officials’ records and the information provided by the staff of accounts department. There

may be window dressing.

Objectives

1. The primary objective of taking up this project was to gain insight and have as much

as practical knowledge in the financial statements prepare in the company.

2. To know the present financial position of the organization for the purpose of better

understanding of the system.

3. To analyze the financial statements of the plant.

4. To find out whether the company has maintained the necessary records in proper

manner.

5. To check any shortcomings in the existing system and suggest appropriate measures.

6. To check also the quality of the products of Verka Milk Plant Bathinda.

Limitations of the study

There are main limitations of the study. These are as follow.

29

1. It is very difficult to take financial statements from the company as no one gives its

correct figures.

2. There may be window dressing of the statements also.

3. As it is government institution no one has sufficient time to attend the trainees

properly.

4. Without the proper help of trainer there is difficulty in analyzing statement.

5. Because of the lack of sufficient staff there is always hotchpotch of work. Everyone is

busy in his or her own work.

6. There is no separate training department.

RESEARCH METHODOLOGY:--

Research Design :

A research design is the arrangement of conditions for collection and

analysis of data in a manner that aims to combine relevance to the research purpose with

economy in procedure .A research design is purely and simply the framework of plan for a

study that guides the collection and analysis of data. It is a blue print that is followed in

completing a study. Keeping in view the objectives of the project. I opted for conclusive,

statistical research methods.

Statistical Techniques :

These techniques are used as they provide more accurate results. The

method eases to identify individual cases and focuses on classes, average, percentages,

measures of dispersion and others .As a result the research can make much more accurate

generalization than by any other method.

Recognition of information:

30

This step is the recognition of various types of information which

are necessary for the study of Financial Analysis.

Data Collection Methods:

Understanding of reports being prepared by the units. For understanding the various types of

reports being sent to finance department by different section, personal interviews have been

conducted with the concerned persons with prior permission from concerned department

head.

According to needed of project I have pursued secondary data collection method. I have used

Milkfed website, research book, financial statements of Verka and finance related books for

secondary data collection method. The findings & suggestions are based on personal

intellectual

Suggestions :

Suggestions on the basis of financial analysis have given for better results.

For analyzing the concept the techniques have been used:-

capital budgeting tools

techniques

Statement of changes in financial analysis

LIMITATIONS OF THE STUDY:-

They do not prepare cash statement separately. Cash flow statement is prepared

collectively for whole of the units.

31

Time period for the study is limited.

As the receipts from debtors is directed to the corporate office and hence not much

information regarding the receivable management could be obtained.

Investment of funds are also made by corporate office, so it becomes difficult to know

that how much investment is made in different ways for continuous availability of

funds.

INTRODUCTION OF FINANCIAL ANALYSIS:

Financial statements are prepared primarily for decision making. They play a dominant role

in setting the framework of managerial decisions. But the information provided in the

financial statements is not an end in itself as no meaningful conclusions can be drawn from

these statements alone. However, the information provided in the financial statements is of

immense use in making decisions through analysis and interpretation of financial statements.

Financial analysis is the process of identifying the strengths and weaknesses of the firm by

properly establishing relationship between the items of balance sheet and profit & loss

account.

Meaning of Financial Analysis

Analysis is the process of critically examining in detailing accounting information given in

the financial statements. Analyzing financial statements is a process of evaluating

relationship between component parts of financial statements to obtain a better understanding

of firm’s position and performance. It is the process of determining financial strengths and

weaknesses of the firm by establishing strategic relationship between the items of the balance

sheet, profit & loss account and other operative data. The analysis of financial statements thus

refers to the treatment of the information contained in the financial statements in a way so as

to afford a full diagnosis of the profitability and financial position of the firm concerned. For

this purpose financial statements are classified methodically, analyzed and compared with the

figures of previous years or other similar firms.

32

Definition of Financial Analysis

According to Kennedy and Memullar, “The analysis and interpretation of financial statements

are an attempt to determine the significance and meaning of the financial statements data so

that a forecast may be made of the prospects for future earnings, ability to pay interest and

debt maturities and profitability of a sound dividend policy.”

Objectives of Financial Analysis

The primary objective of financial statement analysis is to understand and diagnose the

information contained in the financial statement with a view to judge the profitability and

financial soundness of the firm, and to make forecast about future prospects of the firm.

These are the following objectives of analysis may be stated to bring out the significance of

such analysis:

To assess the earning capacity of the firm.

To assess the operational efficiency and managerial effectiveness.

To assess the short term as well as long term solvency position of the firm.

To make inter firm comparison.

To make forecasts about future prospects of the firm.

To assess the progress of the firm over the period of time.

To help in decision making and control.

To guide or determine the dividend action.

To provide important information for granting credit.

Parties Interested in Financial Analysis

33

The following parties are interested in the analysis of financial statements.

1. Investors

2. Management

3. Creditors or suppliers

4. Bankers and Financial institutions

5. Employees

6. Government

7. Trade associations

8. Stock exchanges

9. Economists and researchers

10. Taxation authorities

Procedure of Financial Analysis

Broadly speaking there are three steps involved in the analysis of financial

statements. These are: 1) selection 2) classification 3) interpretation. The first

involve selection of information relevant to the purpose of analysis of financial

statements. The second step involved is the methodical classification of the data

and the third step includes drawing of inferences and conclusions.

The following procedure is adopted for the analysis and interpretation of financial

statements:

1. The analyst should acquaint himself with the principles and postulates of

accounting. He should know the plans and policies of the management so

that he may be able to find out whether these plans are executed or not.

2. The extent of analysis should be determined so that the sphere of work

may be decided. If the aim is to find out the earning capacity of the firm

then analysis of income statement is to be undertaken. On the other hand

34

if financial position is to be studied then balance sheet analysis will be

necessary.

3. The financial data given in the financial statements should be re-

organized and re-arranged. It will involve the grouping of similar data

under same heads, breaking down of individual components of

statements according to nature. The data is reduced to a standard form.

4. A relationship is established among financial statements with the help of

tools and techniques of analysis such as ratio, trends, common size etc.

5. The information is interpreted in a simple and understandable way. The

significance and utility of financial data is explained for helping decision

taking.

6. The conclusions drawn from interpretation are presented to the

management in the form of report.

Types of Financial Analysis

We can classify various types of financial analysis into different

categories depending upon 1) the material used 2) the method of

operation followed in the analysis or the modus operandi of analysis.

1. On the basis of material used: According to material used, financial

analysis can be of two types: a) external analysis b) internal analysis.

a) External analysis: This analysis is done by outsiders who do not

have the asses to detailed internal accounting records of the

business firm. These outsiders include investors, potential

investors, creditors, potential creditors, government agencies and

general public.

b) Internal Analysis: The analysis conducted by the persons who

have the asses to the internal accounting records of a firm is

known as internal analysis. Such as analysis can be performed by

executives and employees of the organization as well as

35

government agencies which have statutory powers vested in

them.

2. On the basis of modus operandi: according to the operation followed

in the analysis, financial analysis can also be of two types: a)

horizontal analysis and b) vertical analysis.

a) Horizontal Analysis: Horizontal analysis refers to the comparison

of financial data of a company for several years. The figures of

various years are compared with standard year. A base year is

year chosen as beginning point. This type of analysis is also

called ‘Dynamic Analysis’.

b) Vertical Analysis: Vertical analysis refers to the study of

relationship of the various items in the financial statements of one

accounting period.

3. On the Basis of Entities Involved: on the basis of entities involved in

the analysis, it can be of two types: a) cross sectional b) time series.

a) Cross Sectional: Cross sectional analysis involves comparison of

financial data of a firm with other firms averages for the same

time period.

b) Time Series: Time series analysis involves the study of the

performance of the same firm over a period of time.

4. On the Basis of Time Horizon: On the basis of time horizon,

financial analysis can be of two types: a) short term analysis and b)

long term analysis.

a) Short Term Analysis: Short term analysis measures the liquidity

if the firm.

36

b) Long Term Analysis: Long term analysis involves the study of

firm’s ability to meet the interest costs and repayment schedules

of its long term obligations. The solvency, stability and

profitability are measured under this type of analysis.

Goals

Financial analysts often assess the firm's:

1. Profitability -its ability to earn income and sustain growth in both short-term and long-

term. A company's degree of profitability is usually based on the income statement, which

reports on the company's results of operations;

2. Solvency - its ability to pay its obligation to creditors and other third parties in the long-

term;

3. Liquidity - its ability to maintain positive cash flow, while satisfying immediate

obligations;

4. Stability- the firm's ability to remain in business in the long run, without having to sustain

significant losses in the conduct of its business. Assessing a company's stability requires the

use of both the income statement and the balance sheet, as well as other financial and non-

financial indicators.

Methods of Financial Analysis

A numbers of methods or devices are used to study the relationship between different

statements. The following methods of analysis are generally used:

1) Comparative Statements

2) Trend Analysis

37

3) Common- Size Statements

4) Funds Flow Analysis

5) Cash Flow Analysis

6) Ratio Analysis

7) Cost- Volume-Profit Analysis

1.Comparative Statements: The comparative financial statements are statements of the

financial position of different period of time. The elements of financial position are shown in

a comparative form so as to give an idea of financial position at two or more periods. The

comparative statements may show:

a. Absolute figures (rupee amounts)

b. Changes in absolute figures

c. Absolute data in terms of percentages

d. Increase or decrease in terms of percentages

From practical point of view, generally, two financial statements are prepared in comparative

form for financial analysis purpose. These are balance sheet and income statement. These

show not only the comparison of figures of two periods but also are relationship between

balance sheet and income statement enables an in depth study of financial position and

operative surplus.

a. Comparative Balance Sheet: The comparative balance sheet analysis is the study of

the trend of the same items, and computed items in two or more balance sheets of the

same business enterprise on different dates. The changes in periodic balance sheet

items reflect the conduct of a business. The changes can be observed by comparison

of balance sheet at the beginning and at the end of the period and these changes can

help in forming an opinion about the progress of an enterprise.

38

Comparative Balance Sheet

As on 31.3.2011 and 31.3.2012

2011 2012 Absolute change %age change

Assets

Fixed Assets(A)

Investments(B)

Working Capital(C):-

Current Assets

Less: Current

Liabilities

(C) =

Profit and Loss a/c

(D)

7,31,57,687.97

1,25,00,100

7,37,63,885.26

26,06,45,936.59

(186882051.20)

207529797.06

7,43,59,463.97

1,25,00,100

14,21,51,557.93

25,82,64,140.47

(116112582.60)

217237252.65

12,01,776

-

6,83,87,672.64

23,81,796.10

(70769468.6)

9707455.50

1.64

-

92.71

0,91

37.87

4.68

Total Assets = 106305533.70 187984233.90 81678700.20 76.8

39

(A+B+C+D)

Liabilities

Share Capital

Reserve and Surplus

Secured and Short

term loans

Depreciation Reserve

12009600

59964

33462895.08

60773074.62

12010605

59964

113550550.28

62363114.80

1005

-

80087655.22

1590040.18

0.008

-

239.33

2.62

Total Liabilities 106305533.70 187984234.10 81678700.20 76.83

Interpretation:

1) Comparative balance sheet reveals that during 2012 there has been increased in fixed

assets of Rs. 12,01,776 , i.e. 1.64% while the share capital has increased by Rs. 1005 and

loans decreased by Rs. 80087655.22.

2) The current assets have been increased by Rs.6,83,876 i.e. 92.71%. The current liabilities

have been decreased by Rs. 23,81,796. This depicts that the company has somewhat

improved.

3)The overall financial position of the company is bad.

Advantages of Comparative Balance Sheet:

40

The following are the main advantages of the comparative balance sheet:

The comparative balance sheet depicts the position of the firm on different dates

and also the extent of the increase or decrease between these dates.

The comparative balance sheet shows the position of the firm as well as it marks

out travels over a period of time.

Comparative balance sheet highlights the change as well as the position whereas

in single balance sheet only position can be known.

Comparative balance sheet bridges the Balance Sheet and Profit & Loss Account.

It shows the effects of operations on the assets, liabilities and capital.

b. Comparative Income Statement: The comparative income statement gives the

results of the operations of the business. The statement discloses the net profit or net

loss resulting from the operation of the business. Such statements show the operating

results for a number of accounting periods so that changes in absolute data from one

period to another period may be stated in terms of absolute changes or in terms of

percentages. This statement helps in deriving meaningful conclusion as it is very easy

to ascertain the changes in sales volume, administrative expenses, selling and

distribution expenses, cost of sales etc.

COMPRATIVE INCOME STATEMENT as on 31.3.2011 and 31.3.2012

Items 2011 2012 Absolute change in

2012

%age

change

Sales

(-)Cost of

goods sold

Gross

Profit(A)

740102002.42

747517361

(74153586)

720989597.53

709320585.6

11669011.9

(191124049)

(38196775.4)

19084370.5

(2.58)

(5.11)

257.36

41

(-)Operating

Expenses(B):

Operting.

Profit(A-B)

(+)No

n-Operating

Profits

(-)Interest

Paid

Net Profit

Before Tax

20746016.01

(28161374.61)

35522847.76

-------

7361473.15

21551515.65

(9882503.75)

175048.34

--------

(9707455.41)

805499.64

(1827880.86)

(3547799.42)

------

(17068928.56)

3.88

(64.91)

(0.99)

----

(231.87)

2) Trend Analysis: This analysis is important tool of horizontal financial analysis. This

analysis enables to know the changes in the changes in the financial function and

operational between the times periods chosen by studying the trends of each item we can

know the direction of changes. Under this method the trend percentage are calculated

for each item of the financial statements taking the figure of base year as 100. The

starting year is usually taken as base year. The trend percentages show the relationship of

each item with its preceding year’s percentages.

While calculating the trend percentages, the following precautions may be taken:

42

1) The accounting principles and practices must be followed constantly over the period

for which the analysis is made. This is necessary to maintain consistency and

comparability.

2) The base year selected should be normal and representative year.

3) Trend percentages should be calculated only for those items which have logical

relationship with one another.

4) Trend ratios of each item in other statement is calculated with reference to the same

item in the base statement by using following formula:

Absolute value of item in the statement under study/ absolute value of the same item in

the base statement*100

5) Trend percentages should also be carefully studied after considering the absolute

figures on which these are based. Otherwise they may give misleading conclusions.

6) To make the comparison meaningful, trend percentage of current year should be

adjusted in the light of price level change as compared to base year.

Limitation of Trend Ratios

The following are the main limitation of the trend ratios:

1) Trend ratios become incomparable if the same accounting practices are not followed.

2) Trend ratios do not take into consideration the price level changes.

3) Trend ratios must always be read with absolute data on which they are based,

otherwise the conclusions may be misleading.

43

4) The trend ratios have to be interpreted in the light of certain non financial factors like

economic condition, government policies, change in income and its distribution etc.

3) Common Size Statement: Common size financial statements are those in which figures

reported are converted to some common base. Items in the financial statements are presented

as percentage or ratios to total of the items and a common base for comparison is provided.

Hence vertical analysis becomes possible. Each percentage shows the relation of the

individual item to its respective total. Common size statements may be used for balance sheet

as well as income statement. The short-comings in comparative statements and trend

percentages where changes in items could not be compared with totals have been covered up.

The analyst is able to assess the figures in relation to values.

1) Common Size Income Statement: In such a statement, sales figure is assumed to be

equal to 100 and all other figures of cost or expenses are expressed as percentage of

sales. The increase in sales will certainly increase the selling expenses and administrative

or financial expenses. In case the volume of sales is increases to a certain extent,

administrative and financial expenses may go up. So, a relationship between sales and

other items in income statements. Comparative income statements for different periods

help to reveal the efficiency or otherwise of incurring any cost or expenses. If it is being

prepared for two firms, it shows the relative efficiency of cash cost items for the two

firms.

COMMON SIZE INCOME STATEMENT

As on 31.3.2011 and 31.3.2012

Items Amount

2011 (Rs.)

%in relation to

sales

Amount

2012 (Rs.)

%in relation to

sales

Net Sales(A) 74,01,02,002.42 100 72,09,89,597.53 100

44

(-) Cost of

Goods Sold(B)

(C)Gross

Profit (A-B)

(-) Operating

Exp.(D)

Operating

Profit(C-D)

(+)Non

Operating

Profits

Total Profit

(-)Non

operating

Expenses

Net Profit

Before Tax

747517361

(7415358.60)

20746016.01

(28161374.61)

35522847.76

7361473.15

-

7361473.15

101

(1.00)

2.80

(3.81)

4.80

0.99

-

0.99

709320585.6

11669011.9

21551515.65

(9882503.75)

175048.34

(9707455.41)

-

(9707455.41)

98.38

1.62

2.99

(1.37)

0.024

(1.35)

-

(1.35)

45

2) Common Size Balance Sheet: In a common size balance sheet, total assets or total

liabilities are taken as 100 and all figures are expressed as percentage of total,

comparative common size balance sheet for different periods helps to highlight the trend

in different items. If it is prepared for different firms in an industry, it facilitates to judge

the relative soundness and helps in understand their financial strategy.

The common size balance sheet can be used to compare companies of

different sizes. The comparison of figures in different periods is not useful because total

figures may be affected by a numbers of factors. It is not possible to establish standard

norms for various assets. The trends of figures from year to year may not be studied and

even they may not give proper results.

Common Size Balance Sheet as on 31.3.2011 and 31.3.2012

Particulars Amount

2011

Amount

2012

%age change in

2011

%age change

in 2012

Assets

Fixed Assets

Investments

Current Assets

7,31,57,687.97

1,25,00,100

7,37,63,885.26

7,43,59,463.97

1,25,00,100

14,21,51,557.93

19.94

3.41

20.10

16.66

2.80

31.85

46

Profit and Loss a/c

(D)

207529797.06 217237252.65 56.56 48.68

Total Assets 366951470.29 446248374.55 100 100

Liabilities

Share Capital

Reserve and Surplus

Secured and Short

term loans

Current Liabilities &

Provision

Depreciation Reserve

12009600

59964

33462895.08

260645936.59

60773074.62

12010605

59964

113550550.28

258264140.80

62363114.80

3.27

0.016

9.12

71.03

16.56

2.69

0.013

25.45

57.87

13.97

Total Liabilities 106305533.70 187984234.10 100 100

.

47

4) Funds Flow Statement: This statement is prepared in order to reveal clearly the various

sources where from the funds are procured to finance the activities of a business concern

during the accounting period and also brings to highlights the uses to which these funds are

put during the period.

Schedule of Change in Working Capital

Particulars 2011 2012 Effect on

Working Capital

Increase

Effect on Working

Capital

Decrease

Current assets:

Cash and bank

balance

Inventory (store

+milk & milk

products)

Prepaid expense

Dues

Others

Total c. assets

4901831.09

57392269.46

84283.00

9779269.51

1606232.20

73763885.26

1280413.12

112165359.6

70273.00

1316632.85

11003601.60

142151557.93

-

54773090.14

-

3337363.34

9397369.40

3621417.89

-

14010.00

-

-

48

Current liabilities:

Sundry creditors

Outstanding exp.

Expenses payable

Other liabilities

Total c. liabilities

W.C.(C.A.-C.L.)

19074473.30

2401727.00

15966881.49

223202854.80

260645936.59

(186882051.20)

34555054.58

2416597.00

11749785.44

209542703.50

258264140.47

(116112582.50)

-

-

4217096.05

13660151.30

(70769468.70)

15480581.28

14870.00

-

-

-

Importance of funds flow statement: The importance of funds flow statement can be well

followed from its various uses given below:

a) It helps in the analysis of financial operations: The funds statements reveal the net

effect of various transactions on the operational and financial position of the concern. It

explain the causes for changes in the assets and liabilities between two different points of

time and also the effect of these changes on the liquidity position of the company.

b) It helps in the formation of dividend policy: Sometimes a firm has sufficient profits

available for distribution as dividend but yet it may not be advisable to distribute

dividend for lack of liquid or cash resources. In such cases a fund flow statement helps in

the formation of a realistic dividend policy.

c) It helps in the proper allocation of resources: A projected funds flow statement

constructed for the future helps in making managerial decisions.

49

d) It helps as a future guide: A projected funds flow statement act as a guide for future to

the management. The management can come to know the various problems it is going to

face in near future for want of funds.

Limitations of Funds Flow Statement:

The funds flow statement has a number of uses; however, it has certain limitations also,

which are listed as below:

a) Funds flow statement is not a substitute of an income statement or balance sheet. It

provides only some additional information as regards changes in working capital.

b) It cannot reveal continuous changes.

c) It is not an original statement but simply are-arrangement of data given the financial

statements.

d) It is essentially historic in nature and projected funds flow statement cannot be

prepared with much accuracy.

e) Changes in cash are more important and relevant for financial management than the

working capital.

5) Cash Flow Statement: This statement is prepared to know clearly the various items

of inflow and outflow of cash. It is an essential tool for short term financial analysis and

is very helpful in the evaluation of current liquidity of business concern. It helps the

business executives of a business in the efficient cash management and internal financial

management.

Importance of Cash Flow Statement: It is an essential tool of financial analysis for short-

term planning. The chief advantages of cash flow statement are as follow:

50

a) Since a cash flow statement is based on the cash basis of accounting, it is very useful

in the evaluation of cash position of a firm.

b) A project cash flow statement can be prepared in order to know the future cash

position of a concern so as to enable a firm to plan.

c) A comparison of the historical and projected cash flow statements can be made so as

to find the variations and deficiency or otherwise in the performance so as to enable a

firm to take immediate and effective action.

d) Cash flow statement helps in planning the repayment of loans, replacement of fixed

assets and other similar term planning of cash.

e) It better explain the causes of poor cash position in spite of substantial profits in a firm

by throwing light on various applications of cash made by the firm.

Limitations of Cash Flow Statement :

Despite a number of uses, cash flow statement suffers from the following limitations:

a) As cash flow statement is based on cash basis of accounting, it ignores the basic

accounting concept of accrual basis.

b) Some people feel that as working capital is wider concept of funds, a funds flow

statement provides a more complete picture than cash flow statement.

c) Cash flow statement is not a substitute for judging the profitability of the firm as non-

cash charges are ignored while calculating cash flows from operating activities.

d) A cash flow statement is not a substitute of an income statement; it is complementary

to an income statement.

51

6) Ratio Analysis: It is done to develop meaningful relationship between individual items

or group of items usually shown in the periodical financial statements published by the

concern. An accounting ratio shows the relationship between the two inter related

accounting figures as gross profit to sales, current liabilities, loaned capital to owned

capital etc.

The ratios are of different types. These are as follow:

Liquidity Ratios

Profitability Ratios

Activity/Turnover or performance ratios

Stability Ratios

From above four types of ratios the most important ones are liquidity and profitability

ratios. The description of these is as follow:

Liquidity Ratios:

Liquidity refers to the ability of a concern to meet its current obligations as and when

these become due. If current assets can pay off current liabilities, then liquidity position

will be satisfactory. The bankers, suppliers of goods and other short term creditors are

interested in the liquidity of the concern. They will extend credit only if they are sure

that current assets are enough to pay out the obligations. To ensure the liquidity of the

firm, the following ratio of can be calculated:

Current Ratio:

Current ratio may be defined as the relationship between current assets and

current liabilities. This ratio, also known as working capital ratio, is a measure of

general liquidity and is most widely used to make the analysis of a short term

financial position of the firm.

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Current ratio= current Assets/Current Liabilities

Current ratio=142151557.93/258264140.47

=0.554

Profitability Ratios: The primary objective of a business undertaking is to earn profits.

Profits are a useful measure of overall efficiency of a business. Profits are the test of

efficiency to the management and a measurement of control. Generally, profitability

ratios are calculated in relation to sales or in relation to investment. The various

profitability ratios are discussed below:

Gross Profit Ratio:

Gross profit ratio measures the relationship of gross profit to net sales and usually

represented as a percentage. Thus, it is calculated by dividing the gross profit by sales:

Gross Profit Ratio=Gross Profit/Net Sales*100

=11669011.72/720989597.53*100 =1.618

Net Profit Ratio:

Net profit ratio establishes a relationship between profit and sales, and indicates the

efficiency of the management in firm. This ratio is the overall measure of firm’s

profitability and is calculated as:

Net profit ratio= net profit after tax/net sales*100

= -9707455.59/720989597.53*100

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= -1.346

Return on Investment:

Return on investment, popularly known as ROI is the relationship between the net profits

and the proprietor’s funds. As the primary objective of the business is to maximize its

earnings, this ratio indicates the extent to which this primary objective of business is being

achieved. The inter-firm comparison of this ratio determines whether the investment in the

firm are attractive or not as the investors would like to invest in only where the return is

higher.

ROI= Net profit/shareholder’s funds

= -9707455.59/12010605*100

= -80.82

8) Cost-Volume-Profit Analysis:

9) Cost-volume-profit analysis is a technique for studying the relationship between cost,

volume and profit. Profits of an undertaking depend upon a large number of factors.

But the most important of these factors are the cost of manufacture, volume of sales

and the selling prices of products. The three factors of CVP analysis i.e. costs, volume

and profit are interconnected and dependent on one another. For example, profits

depend upon sales, selling price to a large extent depends upon cost and cost depends

upon volume of productions it is only the variable cost that varies directly with

production, whereas fixed cost remains fixed regardless of the volume produced. In

cost-volume-profit analysis an attempt is made to analyze the relationship between

variations in cost with variations in volume.

Break-Even Analysis:

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The study of cost-volume-profit analysis is often referred to as ‘break even analysis’. The

term break even analysis is used in two senses- narrow sense and broad sense. In its broad

sense, break even analysis refers to the study of relationship between costs, volume and profit

at different levels of sales or production. In its narrow sense, it refers to a technique of

determining that levels of operations where total revenues equal total expenses, i.e. the point

of no profit, no loss.

Terms used in break even analysis

Break Even Point:

The breakeven point may be defined as that point of sales at which total revenue is equal to

total expenses. It refers to that level of output which evenly breaks the costs and revenues. It

is also called ‘critical point’ or ‘equilibrium point’.

Contribution:

Contribution is the difference between sales and variable cost or marginal cost of sales. It

may also be defined as the excess of selling price over variable cost per unit. Contribution

can be represented as:

Contribution= sales – variable cost

Or contribution = selling price – variable cost per unit

Or contribution= fixed cost + profit (-loss)

Margin of Safety:

The excess of actual or budgeted cost over the break-even sales is known as the margin of

safety. It is the difference between the actual sales minus the sales at break-even point. As at

break-even point there is no profit, no loss, sales beyond the break-even point represent

margin of safety because any sales above the break-even point will give some profit.

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Margin of safety= total sales- sales at break-even point

Assumptions of Break Analysis

1. All elements of cost, i.e. production, administration, selling and distribution can

be segregated into fixed and variable components.

2. Variable cost remains constant per unit of output irrespective of the output and

thus fluctuates directly in proportion to changes in the volume of output.

3. Fixed cost remains constant at all volumes of output.

4. Selling price per unit remains unchanged at all levels of output.

5. Volume of the production is the only factor that influences cost.

6. There will be no change in the general price level.

7. There is only one product or in case of multi-products, the sales mix remains

unchanged.

8. There is synchronization between production and sales.

Computation of break-even point: The breakeven point can be calculated by the following

methods:

Algebraic Formula Method: The breakeven point can be computed in terms of: a) units of

sales volume.

Break-Even Point= fixed cost/selling price-variable cost

Or= fixed cost/contribution per unit

b) In terms of money value

Break-Even Sales= fixed cost/p/v ratio

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c) As a percentage of estimated capacity

BEP= fixed cost/total contribution

Limitations of Break-Even Analysis:

1. The technique is based upon a number of assumptions which may not hold well

under all circumstances.

2. All costs are not divisible into fixed and variable. There are certain costs which

are semi variable in nature.

3. Variable costs do not remain constant and do not always vary in direct proportion

to volume of output because of law of diminishing returns.

4. Selling price does not remain constant forever and for all levels of output due to

competition, discounts for bulk orders etc.

5. Fixed cost does not remain constant after a certain level of activity.

Interpretation of the Analysis

From the whole analysis we can interpret that the company is going worse. As the liabilities

of the firm are more than its assets. The other expenses of the firm are increasing day-by-day.

But the sill firm is going on. The main reason behind this is social welfare. The firm is

recovering its position through the rehabilitation scheme of National Diary Development

Board (NDDB). This board has provided Rs. 13.60 crores this year for the recovery. The rest

will be recovered by selling land which as deal of Rs. 15-20 crores. Here in this study we

cannot do CVP analysis, the reason for it is that this firm is not fulfilling the main

assumptions. By the entire study the conclusion is that the firm is facing worst position from

the last very 8 years.

Limitations of financial analysis:

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Financial analysis is a powerful mechanism of determining financial strengths and

weaknesses of a firm. But, the analysis is based on the information available in the financial

statements. Thus, the financial analysis suffers from serious inherent limitations. Some of the

limitations are summed up as below:

1. It is only a study of interim reports.

2. Financial analysis is based only upon monetary information and monetary factors

are ignored.

3. It does not consider changes in price levels.

4. As the financial statements are prepared on the basis of a going concern, it does

not give exact position. Thus accounting concepts and conventions cause a

serious limitation to financial analysis.

5. Changes in accounting procedure by a firm may be often make financial analysis

misleading.

6. Analysis is only a mean and not an end in itself. The analyst has o make an

interpretation and draw his own conclusions. Different people may interpret the

same thing in different ways.

Suggestions

1. As the unit running at loss the general manager should take the initiative to

recover its loss either through the diversification or through increasing the

sales.

2. There should be proper training cell for the employees as well as trainees.

3. The performance of the unit can be improved upon by insuring less wastage.

4. There should be check on the dealers of the units so they cannot be corrupt.

5. New recruitments should be there so as to maintain proper sufficient staff.

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6. Marketing department should try to increase its sales by giving knowledge &

awareness of Verka’s quality of products.

Findings

There is proper system of maintaining the records and books of accounts.

All the payments are made in time.

The production in Verka Milk Plant is on demand so there is no much wastage.

Special audit inspector is there to audit the financial statements elected by

government.

The records of last year’s are maintained. These can be used to establish a trend

analysis. Shortcomings of organization and changes in demand can be estimated

through the comparison of last years records.

The plant has its motive of social welfare and profit earning.

Verka Milk Plant Bathinda is the firm which is strengthening the dairy sector by

providing remunerative prices for the milk.

The plant is running on loss from last 8 years. There are many reasons for that.

Conclusion

From the analysis of financial statements of Verka Milk Plant Bathinda we can conclude at

the end that the unit is running at the loss. There are many reasons for this loss. The main are

the hike in prices of milk, low rates of product, low commission to dealers lead to less sale of

Verka products, rise in salaries, increasing variable expenses per year and also because of

lack of awareness among customers. The other main reason of loss is that Verka’s main aim

is social welfare and not profit earning. Verka is brand known for its quality and welfare.

This has improved the structure of Punjab dairy sector.

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BIBLIOGRAPHY

AUTHOR BOOK

Khan & Jain Management Accounting

Gupta, Shashi.k Financial Management

Websites:

www.google.com

www.milkfed.nic.in

OTHER SOURCE OF INFORMATION

Annual Reports of VERKA MILK PLANT.

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